03 February 2014

Too Big to Jail?

Why have we seen so few convictions for those responsible for our economic collapse? What actually happens when a corporation is charged with wrongdoing? Should its employees be held criminally accountable? In Too Big to Jail: How Prosecutors Compromise with Corporations, law professor Brandon L. Garrett takes us into a complex world of backroom deals for an unprecedented look at what happens when criminal charges are brought against a major company in the United States. In the interview below, Garrett introduces us to his study, which we’ll publish later this year.

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Q: Briefly, what can readers expect from Too Big to Jail?

When a company faces criminal charges, a completely different side of the criminal justice system is revealed. Normally, federal prosecutors play the role of Goliath, wielding incredible power and discretion. The world of corporate crime is completely different. Prosecutors play the role of David when they are up against the largest and most powerful corporations in the world. In recent years, prosecutors have taken on the likes of AIG, Bristol-Myers Squibb, BP, GlaxoSmithKline, Google, Halliburton, HealthSouth, HSBC, JPMorgan, KPMG, Merrill Lynch, Monsanto, and Pfizer, and such companies can mobilize astonishing resources in their defense.

Corporate prosecutions have been transformed over the past decade, but when you look beyond the Fortune 500 companies and the seeming blockbuster fines, a story of deep compromise emerges. I found that prosecutors typically negotiate deals with lenient fines, vaguely defined reforms that appear largely “cosmetic,” no review by a judge, and allowing many of the most serious corporate criminals to avoid a criminal conviction entirely. As a result, I raise “too big to jail” concerns extending far beyond the Wall Street banks.

Q: Your work here will likely be welcomed by the many people outraged over the general failure to bring criminal prosecutions in the wake of the financial collapse—Senator Elizabeth Warren comes to mind. And yet you actually began the project in 2006, before the crisis. Do you see the financial collapse as any sort of turning point in the prosecution of corporations, or is it just the backdrop that’s helped bring attention to these pre-existing patterns of compromise?

The expression “too big to jail” has been used by Senator Warren and others to refer to failures to prosecute Wall Street bankers after the last financial crisis. To see why corporations themselves may escape prosecution, however, it is important to understand how a company is prosecuted, and the practical challenges such cases face. Federal prosecutors cemented their current approach to corporate prosecutions following the Arthur Andersen trial, which took place in 2002, and which I describe in the book—the jury convicted Andersen, resulting in the collapse of the company, but the conviction was then reversed on appeal. Fearful of the backlash should more high-profile cases end in disaster, prosecutors decided to allow more companies to avoid a conviction by entering deferred and non-prosecution agreements. Those deals took off in 2003, and they first caught my attention in 2006, when just a few dozen had been entered. The new approach was firmly in place when the financial crisis hit in 2007, and perhaps as a result, some companies may have felt they could settle prosecutions as a cost of doing business.

However, my work should be equally welcomed by those who think some corporations targeted do not deserve prosecution, and that prosecutors should be clearer about what corporate crimes deserve punishment. My main goal in exploring corporate prosecutions is to encourage more public attention to the troubling problem of how to hold corporations accountable for crimes.

Q: What are deferred prosecution agreements? Are they effective?

Prosecutors increasingly compromise the most important corporate criminal cases. The deferred prosecution approach had humble origins in a plan to give lenient treatment to first-time drug offenders in Brooklyn in the 1930s: file a case, put it on hold to give the defendant a chance to stay clean, and if so, the judge dismisses the case. In my book, I describe how KPMG avoided a grand jury indictment and a conviction in a major tax case by signing a deferred prosecution agreement. KPMG agreed to pay large fines, close down part of its business, and hire a monitor to supervise a new compliance program.

The most striking change in the past decade is how many of the largest firms now receive deferred and non-prosecution agreements. Well over half of the firms receiving deferred and non-prosecution agreements from 2001-2012 were public firms or subsidiaries of public firms. These agreements ostensibly reward efforts by corporations to implement reforms on their own, but it is often not clear what reforms are demanded or whether they actually work. In the book, I lay out ways to improve the effectiveness of these corporate prosecutions, including insisting on more stringent terms in agreements, careful monitoring, and judicial review.

There is no one silver-bullet solution to the core problem, because we know next to nothing about whether these agreements are working or not; the successes or failures of implementation are not made public, and judges supervise few of these deferred prosecution agreements. Not enough is known about how to hold complex organizations accountable generally. We definitely need to look beyond press releases announcing eye-catching fines to learn whether adequate criminal punishment is imposed and whether structural reforms are working.

Q: As Mitt Romney so famously reminded us, corporations are people in the eyes of the law. What’s the relationship between prosecution of the corporate “person” and prosecution of the living, breathing persons employed there? What challenges inhere in prosecuting individuals, and why is it important to pursue individual prosecutions in spite of the hurdles?

As described in a recent Wall Street Journal story, I found that in about two-thirds of the cases involving deferred or non-prosecution agreements and public corporations from 2001-2012, the company was punished but no employees were charged. This is surprising, because a corporation is like no other snitch, and companies typically agree to cooperate fully with prosecutors, by identifying those individuals responsible, and turning over documents, emails, and interviews to help prosecutors build a case.

Even still, it can be very hard to hold employees accountable in complex cases where many people took part in the decisions. Some prominent critics have argued that we shouldn’t bother prosecuting companies at all, and instead should focus just on prosecuting individuals. In my view, neither individuals nor corporations should be let off the hook. And the difficulties in prosecuting individuals in complex corporate cases make it all the more crucial that prosecutors hold the company accountable.

Q: What obstacles have you faced in compiling the database behind Too Big to Jail?

Reading these corporate settlements is not enough, and prosecutorial discretion remains in many ways a “black box.” We do not have any way to know how often prosecutors decline to pursue charges against corporations—they do not usually make those decisions public—except when they enter written non-prosecution agreements. Over two-dozen agreements have not been disclosed to the public, and the UVA First Amendment clinic just filed a FOIA lawsuit to gain access. And we definitely do not know how often corporations commit crimes—the government does not keep data on corporate crime, which is hard to detect and sometimes very hard to define.

Q: In your first book, Convicting the Innocent, you identified patterns in the cases of the first 250 wrongfully convicted people to be exonerated by DNA evidence, and proposed systemic reforms in response. What connections do you see between your ongoing advocacy regarding the prevention of wrongful conviction, and the work you present in Too Big to Jail?

When researching the cases of people exonerated by DNA testing, I read over two hundred criminal trials to try to understand what went wrong, including why people falsely confessed, why eyewitnesses misidentified suspects, why forensics were flawed, and why informants lied. The world of corporate crime is so completely different. Rather than reading records from the trials of indigent people with shoddy lawyers, facing years in prison for crimes they did not commit, I was reading records from the cases of the most privileged offenders imaginable—the largest corporations in the world, which themselves cannot be put in jail. Aside from unusual cases that go to trial like the Arthur Andersen case, there were no trial records for me to read. Corporate prosecutions are settled, and as a result, they shed light on how prosecutors negotiate the largest and most complex cases.

In wrongful conviction cases, understanding sources of error may implicate larger patterns of error in our criminal justice system. In contrast, in the world of corporate crime, a single prosecution of a major player can have enormous repercussions on industry practices in the U.S. and around the globe, since other corporations will be watching and nervous about whether they might be next. Corporate crimes are extremely important; they can affect huge numbers of victims and even entire economies. More broadly, we should judge our criminal justice system by how fairly it treats both the least privileged offenders and the most privileged.

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